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Class I railroads received good news last week, when the Federal Railroad Administration and the Association of American Railroads reached a settlement regarding the guidelines of the Positive Train Control (PTC) regulatory mandate.

The objective of PTC systems is to prevent train-to-train collisions, overspeed derailments, and incursions into roadway work limits. PTC sends and receives a continuous stream of data transmitted by wireless signals about the location, speed, and direction of trains, according to the FRA. PTC systems, added the FRA, utilize advanced technologies including digital radio links, global positioning systems and wayside computer control systems that aid dispatchers and train crews in safely managing train movements.

A mandate for PTC systems was included in House and Senate legislation-H.R. 2095/S. 1889, The Rail Safety and Improvement Act of 2008. The legislation was passed shortly after a September 12, 2008 collision between a freight train and a commuter train in Los Angeles. And it calls for passenger and certain hazmat rail lines to take effect by 2015 and authorizes $250 million in Federal grants. The deadline for railroads to submit their PTC implementation plans to the FRA is April 16.

Details of the settlement were limited, but a Wall Street Journal report said that the Obama Administration has agreed to scale back PTC requirements in an effort to resolve the legal dispute between the FRA and AAR, adding that this settlement could save the freight railroad industry hundreds of millions of dollars as it works to meet the PTC mandate.

The report quoted an AAR spokesperson as saying the railroad industry expects the new rules to exempt 10,000 miles of tracking subject to the PTC requirement, which alone could save $500 million.

A major concern of freight railroads has been that PTC rules finalized in January 2010 required PTC on sections of tracking where the cost is not justified, according to the WSJ report. The report said that the law requires PTC technology on track carrying passengers or highly toxic chemicals, and freight railroads maintain that without changes they will be required to install PTC for thousands of miles of track that will not be carrying toxic chemicals by 2015.

Under the terms of the settlement between the AAR and FRA, “the FRA will publish a Notice of Proposed Rulemaking (NPRM) that will address the issue of whether the PTC rule should be amended by eliminating the requirements to install PTC on Class I railroad mainline track segments that do not carry poison-by-inhalation traffic and are not used for intercity or commuter rail passenger transportation by December 31, 2015,” with the AAR holding off on a planned legal case regarding PTC until the NPRM is issued.

According to a statement from the Senate Commerce Committee, on which Hutchison serves as Ranking Member, traffic patterns for shipping toxic chemicals are changing, in part, due to new Department of Transportation and Transportation Security Administration regulations.

“This means that at least 10,000 route miles used to move chemicals in 2008 are no longer expected to transport these products in 2015,” read the statement. “By requiring that PTC be installed on lines used to transport passengers or certain toxic chemicals based on 2008 usage rather than 2015, the Federal Railroad Administration (FRA) has expanded the Congressional mandate beyond what was intended and dramatically inflated compliance costs.”

The PTC requirement, often referred to as “the unfunded mandate” in railroad circles, has not been warmly received by the railroad industry, due primarily to the high price tag associated with it.

According to FRA estimates, installing PTC technology will cost more than $5 billion for the freight rail industry to install on more than 73,000 miles of tracks by the 2015 deadline, with total costs coming to more than $13 million when passenger trains are included. What’s more, the FRA has publicly stated that the cost-to-benefit ratio of installing PTC is 20-to-1. And the FRA has stated that safety benefits of PTC coming in at between $440 million and $674 million over a 20-year period.

“Senator Hutchison has taken an important first step in bringing commonsense to the implementation of PTC, and we urge her Senate colleagues to stand with her and the bill’s original co-sponsors in fighting this excess regulation,” said AAR President and CEO Edward R. Hamberger, in a statement. “Safety is and has always been our priority and we’re eager to work with the FRA to implement a realistic blueprint for the installation of PTC that will not divert critical investment from other safety measures and infrastructure. We must work together to ensure that our world class freight rail network can continue to deliver for America’s economy, and is not slowed down by mandates that hamper our ability to serve our customers effectively and safely.”

This mindset falls in line with a report on PTC prepared for the AAR by management consultancy Oliver Wyman. The report stated that without external funding the PTC requirement will remove capital away from capacity expansion and other programs required by railroads at a time when the economic recovery is going to require additional railroad infrastructure. And the report added that the $5 billion cumulative PTC investment required by Class I railroads equals what Class I’s have doled out over the last four years, coupled with them having to spend hundreds of millions of dollars per year to maintain the PTC system.

Oliver Wyman Managing Director Bill Rennicke told LM that the PTC legislation is essentially a safety mandate, which ultimately will be paid for by shippers in the form of increased rates.

“If there are 10,000 unneeded miles and the government is now going back to provide a more accurate adjustment of the area in which the technology will be applied, it benefits everybody, not just carriers, but shippers, too, because it is a very expensive system being put in for safety reasons, not for economic or efficiency reasons,” he explained.

Despite the costs issues associated with PTC, there is some sentiment that it has potential to improve productivity in network operations.

“Much as the current air traffic control system limits the number of take-off and landings that can be handled at the nation’s airports, the conventional railway signaling system, based on fixed block length and way-side signals is outdated in terms of the capabilities of today’s technologies,” said Brooks Bentz, a partner in Accenture’s Supply Chain practice. “The reformed bill could be a vehicle to actually improve the utilization of fixed and rolling assets, which will add capacity to the network in a way that would not require constructing new track miles (or at least as many as otherwise will be needed) in order to accommodate future growth. This could be a significant benefit to rail users, carriers and the public if it is structured to incent such an outcome.”

About the Author

Jeff BermanGroup News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).

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